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Trump Faces Stark Choice: Protect Consumers or Banks

A campaign event for Donald J. Trump in Colorado Springs, Colo., in October. Mr. Trump pledged on the campaign trail to stand up to corporate interests and defend consumers in what he called a rigged system.Credit
Damon Winter/The New York Times

But Mr. Trump has appointed and nominated opponents of regulation to his new administration, and one of the features of his campaign was to complain about regulation, particularly the Dodd-Frank rules imposed on banks after the financial crisis. It is Dodd-Frank that created the bureau, and it has been a target of Republican lawmakers ever since.

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The president-elect’s conundrum is illustrated by Washington’s reaction to the sham accounts scandal at Wells Fargo, in which the bank’s employees were found to have opened accounts in customers’ names without telling them. During congressional hearings last fall, lawmakers — Democrats and Republicans — savagely attacked the bank. But on the topic of redress for the bank’s victims, Congress has been divided.

Part of this division concerns the bureau. Created, as its name implies, to protect consumers, the agency required Wells Fargo to refund fees to affected customers and also fined the bank $100 million. But when consumers tried to recover additional damages, Wells Fargo wanted to block them from bringing class-action lawsuits. These customers had agreed to arbitration when they opened accounts. The agreements, which consumers could not hope to understand, barred them from going to court over disputes arising from the real accounts as well as over fake accounts.

Forced arbitration could prevent many, if not most, Wells Fargo customers from obtaining full compensation. That’s because consumers rarely invoke arbitration to recover amounts less than $1,000, according to a study by the consumer bureau. They simply give up.

The agency has proposed a rule to prevent financial institutions from using arbitration clauses to block class actions, but the rule has not yet been completed. If President-elect Trump sides with the banks, it may never take effect.

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Supporters holding up oversized letters spelling “Trump,” as seen from behind flags at a campaign event in Austin, Tex., in August.Credit
Damon Winter/The New York Times

That’s because the House Financial Services Committee has voted to allow banks to continue to use arbitration clauses, even when it comes to accounts opened in consumers’ names without their knowledge, like the Wells Fargo accounts. The committee’s bill would also make it harder for the bureau to protect consumers like the Wells Fargo victims. If the bill becomes law, banks would face fewer restraints on misconduct.

And we’re not just talking about Wells Fargo’s customers. Though still an infant as government agencies go, the consumer bureau has secured nearly $12 billion in relief for about one out of every 12 Americans. That surely includes many of the people Mr. Trump meant when he talked about “protecting those who have no power.”

The agency has done all this in the name of consumer protection regulation. To some, regulation is a bad word, and certainly there are laws that have done little to protect consumers. But others have had considerable benefits. It may be inconvenient to be stuck behind a red light — a form of regulation — but think how much more difficult it would be to get around safely without traffic signals. Good regulations benefit society over all even though sometimes they frustrate people. That could help explain why, even though establishment Republicans may be unhappy with the bureau, polls show that ordinary Americans of both major parties regard it favorably.

Which brings us back to Mr. Trump. Will he side with consumers, or will he stand with the Wells Fargos of the world? It is hard to know. Rumors swirl that he will fire the agency’s director, Richard Cordray, and Mr. Trump has interviewed former Representative Randy Neugebauer of Texas for the job. Mr. Neugebauer is someone thought to be more inclined to protect banks than consumers.

If Mr. Trump chooses not to preserve a strong, independent bureau that protects consumers, he will have enabled his opponents in four years to attack him not only for failing to live up to his rhetoric, but for having become the leader of what he once condemned.

Jeff Sovern is a professor at St. John’s University School of Law and co-coordinator of the Consumer Law and Policy Blog.